VZCZCXRO4614
RR RUEHRG
DE RUEHBR #2193/01 2921405
ZNR UUUUU ZZH
R 191405Z OCT 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 7037
INFO RUEHAC/AMEMBASSY ASUNCION 5740
RUEHBU/AMEMBASSY BUENOS AIRES 4356
RUEHMN/AMEMBASSY MONTEVIDEO 6549
RUEHSG/AMEMBASSY SANTIAGO 5878
RUEHRG/AMCONSUL RECIFE 5696
RUEHRI/AMCONSUL RIO DE JANEIRO 3148
RUEHSO/AMCONSUL SAO PAULO 8389

UNCLAS SECTION 01 OF 05 BRASILIA 002193 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV BR
SUBJECT: BRAZIL ELECTIONS: PRESIDENTIAL CONTEST FOCUSES 
NARROWLY ON PRIVATIZATION VS. CORRUPTION; LULA ADVANCES IN 
POLLS 
 
REF: A. BRASILIA 2157 
¶B. BRASILIA 2100 
¶C. BRASILIA 2027 
¶D. BRASILIA 1996 

¶1. (SBU) Summary. With a week and a half left before the second round of the Brazilian presidential election, the campaign has evolved into a bitter contest dominated by President Luiz Inacio Lula da Silva's (PT - Workers Party) claims that challenger Geraldo Alckmin (PSDB - Brazilian Social Democracy Party) would privatize state firms and cut an entitlement program for millions of poor families, and countercharges by Alckmin's campaign over a scandal in which top PT operatives tried to purchase a dossier of ostensibly damaging information about a leading PSDB politician. 

¶2. (SBU) Summary continued. Latest polling shows Lula has increased his lead to 20 points, but with three more TV debates to go, new revelations could help Alckmin repeat his first round surprise with a sudden gain in the final days. But leading pollsters told Ambassador that Alckmin's earlier surge was probably temporary, and many of third place finisher Heloisa Helena's voters will vote for Lula. They said the election is basically a referendum on Lula's administration, most voters have made up their minds, and only 5-10 percent of votes are still in play. The pollsters said the issues driving voters are jobs, health care, and security. 

¶3. (SBU) Summary continued. Opposition party leaders called this week on the Superior Electoral Court to accelerate its investigation of alleged electoral crimes by the PT after a leading newsweekly reported that Marcio Thomaz Bastos, the Minister of Justice, collaborated in a scheme to divert attention from a central figure in the dossier scandal, Freud Godoy, a long-time Lula insider and adviser. The origin of the dossier money, about USD 800,000, is still unclear. The opposition politicians also asked the Court to investigate as a possible electoral crime Lula's commitment of nearly a half a billion dollars in agricultural loan funds in exchange for political support from the governor of Mato Grosso. A congressional committee ordered eight PT figures implicated in the dossier scandal to testify, but only after the election on October 29. It also ordered Godoy's financial and telephone records opened for investigators. End summary. 

---------------------------- LULA: ALCKMIN WILL PRIVATIZE ---------------------------- 

¶4. (SBU) Lula's campaign is accusing Alckmin of planning to privatize Petrobras (a partly government-owned oil company), the Postal System, and two state-owned banks, the Caixa Economica Federal and the Bank of Brazil. Alckmin is trying to put down the charges by reminding voters that privatization is not in his campaign platform and denying that he will privatize these large state firms. His campaign has charged that Lula's campaign is using a "big lie" tactic, betting that by countless repetition the accusation will gain acceptance with voters. Lula's strategists appear to be betting that the privatization canard will resonate among some middle class voters Lula needs to woo. 

--------------------------------------- ALCKMIN: WHERE DID THE MONEY COME FROM? --------------------------------------- 

¶5. (SBU) While Lula's campaign tries to make Alckmin the privatization bogeyman, the Alckmin campaign is focusing its ammunition on the dossier scandal (refs c and d) that broke just over a month ago and is still under investigation by Federal Police. Alckmin's television ads repeat the theme daily by showing a photo of the seized cash and how many days have elapsed since the scandal broke. The ads declare that, a month after the money was seized from PT operatives, Lula still has not clarified the origin of the dossier money. The latest revelation came in a report by Veja magazine last weekend. Veja reported that top Lula advisers, including Justice Minister Marcio Thomaz Bastos, decided that it was necessary to remove Presidency employee and PT operative Freud Godoy from suspicion because of his proximity to Lula. When the scandal broke in mid-September, Godoy was identified 

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as the link between the PT campaign and the would-be dossier buyers, who were arrested with the money. The Veja story said a Federal Police official was pressured by superiors into breaking prison visitation rules and allowed a private visit involving Gedimar Passos, Godoy, and other PT figures allegedly involved in the scandal. As a result, Veja reported, Passos, who was arrested with the dossier money, retracted his earlier statement that Godoy had been involved. The PSDB is calling for clarification of whether Federal Police prison regulations were violated with the visitations that led to Passos's retraction. 

---------------------------- LULA INCREASES LEAD IN POLLS ---------------------------- 

¶6. (U) Latest polling shows Lula has increased his lead to 20 points over Alckmin. A poll by Datafolha released on October 17 showed Lula with 60 percent and Alckmin with 40 percent, after correcting for estimated null and blank votes. Lula has polled increasingly higher since the Lula-Alckmin TV debate on October 8, even through viewers were divided over who won (ref a). Three more TV debates are scheduled: Oct. 19, 23 and 27. 

--------------------------------- AMBASSADOR'S LUNCH WITH POLLSTERS --------------------------------- 

¶7. (U) At a lunch in Sao Paulo on October 16 hosted by the Consul General, the Ambassador discussed the elections with Clifford Young of Ipsos-Brasil, Marcia Cavallari Nunes of Ibope-Opinion, and Amaury de Souza of MCM Consulting Group. He began by asking what factors accounted for Lula's failure to win in the first round. 

¶8. (U) Young noted that a small percentage of voters, primarily in the impoverished northeast, have trouble with the voting machines and inadvertently nullify their votes. This probably cost Lula some votes. He also lost votes in the last days of the first round because of the dossier scandal and his decision not to participate in the final debate. These factors enabled Alckmin to force a second round, but his surge was only temporary and Lula is winning votes back from him. Many of Heloisa Helena's votes are now shifting to Lula. The various polls show him with a lead of 10-12 points (NOTE: It has grown since. END NOTE.), though not all his votes are considered solid. Alckmin could still overcome the disadvantage, but it is not likely. 

¶9. (U) The pollsters noted that the campaign has been almost devoid of serious discussion of issues. Alckmin has said very little about how he would govern and has failed to articulate a vision for Brazil. The election is essentially a referendum on Lula and his administration. He is winning this referendum because he is perceived to understand and empathize with the poor, and they identify with him. Alckmin, in contrast, is not seen as having any connection with the poor. The great majority of voters are solidly either pro- or anti-Lula, with only about 5-10 percent of the electorate still in play. Lula's social programs and his personal popularity make him more likely to attract these swing votes. 

¶10. (U) Cavallari pointed out that this is the first election in which results revealed such a marked geographic and economic division. In general, southern states, and voters with higher incomes and more education, voted for Alckmin in the first round, whereas Lula carried most of the north and northeast, and poor and uneducated voters. Low inflation and increased purchasing power helped Lula, as did high GDP growth in the northeast. He fared poorly in agricultural states because Brazil's strong currency hurts agricultural exports. 

¶11. (U) In the second round, Young said, Lula has played on voters' fears by reiterating his assertion that Alckmin will privatize state-owned industries and will cut social spending and assistance programs. Alckmin, on the defensive, has had no recourse but to highlight the corruption issue. Lula, who benefits from the fact that many Brazilians consider themselves to be better off, will continue to stress that he won't privatize industries, won't cut social spending, and will create jobs. 

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¶12. (U) The issues that drive voters, according to Cavallari, are jobs, health care, and security. Violent crime in Sao Paulo has declined in recent years, but the violence orchestrated by the First Capital Command (PCC) hurt Alckmin because it went contrary to the "good administrator" image he tried to project. While voters in Rio de Janeiro and Sao Paulo worry most about security, crime is spreading to other areas and is now a concern for an increasing number of voters. For example, voters in the southern state of Parana, which borders on Paraguay, are increasingly concerned about drug trafficking. 

¶13. (U) There is great similarity between the candidates on many issues, De Souza noted. Lula and the PT came to power in 2002 without a platform. They appropriated the orthodox economic policies of Fernando Henrique Cardoso (FHC), and the social programs as well. This leaves little for the candidates to argue about. However, all agreed that foreign policy is one area where there is a clear difference between the candidates. Lula's foreign policy is oriented towards the developing world, whereas Alckmin would focus more on strengthening Brazil's relations with the U.S. and the EU. However, the pollsters all agreed that foreign policy plays almost no role in voters, decision-making. Most Brazilians know little about the subject, and it is considered too abstract. When Alckmin brought up foreign policy during the October 8 debate, Lula was able to turn it to his advantage by highlighting his south-south approach and thus portraying himself as a champion of the underdog. 

¶14. (U) The Ambassador asked if Brazilians were receptive to populism. Our interlocutors agreed that they generally are not. Democratic institutions are strong, and almost half the country supports Alckmin. Brazilians tend to be conservative and are unimpressed with politicians like Hugo Chavez. Populist former Rio de Janeiro Governor Anthony Garotinho is an isolated phenomenon with a small following. However, De Souza thought the danger could possibly arise if Lula, in a second term, were to face a serious economic crisis that damages his popularity. 

¶15. (U) De Souza noted that the next President will face tough economic challenges. The middle class is squeezed by high taxes, which will be hard to cut because Lula has spent so much on income transfers and public servants, salaries. The government is unable to invest in infrastructure, and private investment is insufficient to stimulate growth. Economic reforms are needed, but it will be difficult to generate sufficient support for them in Congress. In the 2010 election, the major issues will be the size of the state, its role in the economy, and big government. 

¶16. (U) The Ambassador closed the lunch by asking how Brazilians view the United States. The unanimous reply was that while U.S. foreign policy (particularly the war in Iraq) is unpopular among Brazilians, most of them still have a very positive image of the country, and still identify with Americans more than with any other people. 

------------------- COURT INVESTIGATION ------------------- 

¶17. (U) In Brasilia this week, after the Veja story appeared, the leaders of three opposition parties met on October 16 to demand that the Superior Electoral Court (TSE) accelerate its investigation of the dossier scandal, and they accused Justice Minister Marcio Thomaz Bastos of acting as the president's personal criminal lawyer. The three leaders, Tasso Jereissati (PSDB), Jorge Bornhausen (PFL - Liberal Front Party), and Roberto Freire (PPS - Socialist People's Party), want the Court to investigate Bastos's alleged involvement in the plot to distance Godoy from the dossier scandal, and they want the Court to investigate Veja's allegation that Paulo Lacerda, head of the Federal Police, and other senior PF officials approved the irregular meeting between Godoy and Passos. According to Veja, the meeting was illegal because it took place outside of regular visiting hours and was not authorized by an internal memorandum. In the meantime, Antonio Carlos Biscaia (PT), the chairman of the Parliamentary Inquiry Committee looking into the dossier scandal, said he is certain that the 1.7 million reais (about 

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USD 800,000) intended to purchase the dossier but seized by Federal Police, came from illegal sources, such as gambling. A Federal Police official working on the case said he expects to know the origin of the money before the second round of voting on October 29, but will not divulge the information before voting. Discovery and proof of use of illicit funds in the campaign would be legal grounds for cancelling Lula's candidacy even after he has won. 

---------------------- CONGRESSIONAL HEARINGS ---------------------- 

¶18. (U) A Parliamentary Inquiry Committee (CPI), already investigating the related ambulance price-rigging scandal, took up the dossier matter and on October 17 ordered eight PT figures to testify, but the earliest hearing will be on October 31, two days after the second round. The eight witnesses will be Ricardo Berzoini, ex-president of the PT and former manager of Lula's campaign; Oswaldo Bargas and Jorge Lorenzetti, longtime Lula associates who worked on the campaign; Freud Godoy, former adviser to Lula and sometime security consultant; Gedimar Passos and Valdebran Padilha, PT operatives who were arrested with the dossier money; Expedito Veloso, former Bank of Brasil risk manager on leave to work on the Lula campaign; and Hamilton Lacerda, former staffer in Senator Aloizio Mercadante's (PT) unsuccessful gubernatorial campaign against Jose Serra (PSDB), the main target of the dossier. The CPI also ordered Godoy's financial and telephone records opened for investigators. 

--------------------------------------------- - A BILLION REAIS FOR FARMERS AND AN ENDORSEMENT --------------------------------------------- - 

¶19. (SBU) Jereissati, Bornhausen and Freire also asked the TSE to investigate a possible electoral crime because Lula SIPDIS announced last week the government will provide a billion reais (USD 450,000,000) in loans to soy farmers in Mato Grosso to roll over debts accumulated over the past few years, which were hard for the agricultural sector. This came the day after Blairo Maggi (PPS), governor of Mato Gross and so-called "soy king," said to be the world's biggest soy grower, declared his support for Lula. Maggi said he will not benefit from the funds because his soy firm, Amaggi, is not endebted. Maggi will almost certainly be expelled from the PPS. 

---------------------- PDT CHOOSES NEUTRALITY ---------------------- 

¶20. (U) The PDT (Democratic Workers Party), whose presidential candidate Cristovam Buarque came in fourth in the first round, decided to remain neutral. PDT supporters may vote as they choose, the party announced this week. Third place finisher Heloisa Helena (PSOL - Socialism and Freedom Party) said right after the first round her party would not endorse any candidate. 

¶21. (SBU) Comment. The conventional wisdom here is that the surprise revelation of the dossier affair gave Alckmin enough of a surge, and took away enough from Lula, that the election went to a second round. But polls suggest the effect is waning and Lula has resurged. As much as Alckmin hammers on the corruption issue, Lula's support grows, possibly because his campaign's fear tactics are working both with the least educated and poorest sectors of the population, and some middle class swing voters who have career and business interests tied to public sector enterprises. Many educated people who voted for the PSOL and PDT are also going for Lula because they believe Alckmin is not in touch with Brazil and will not do as much for social integration as Lula has done. Both of these types of voters appear willing to live with the corruption factor. A week and half is still a lot of time in Brazilian politics, and events are unfolding very rapidly. With three debates to go, an
 investigations under way by Federal Police, Congress and the Superior Electoral Tribunal, there could be more surprises. We are still not ready to call Alckmin out, even though he is way down in the polls -- he has been there before -- because the potential for another October surprise still exists. 

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¶22. (U) Consulate General Sao Paulo contributed to this cable. Sobel